3M Stock To Trade Higher Post Q4?

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Trefis
MMM: 3M Company logo
MMM
3M Company

3M Company (NYSE:MMM) is scheduled to report its Q4 2021 results on Tuesday, January 25. We expect 3M to likely post revenue and earnings above the street expectations, driven by a rebound in the overall economic activity. The company should continue to see robust demand outlook for its home improvement and personal safety products. That said, the chip shortage for the automotive industry may impact 3M’s automotive business.

Furthermore, our forecast indicates that 3M’s valuation is around $197 per share, which is more than 10% above the current market price, implying the stock has some more room for growth. Our interactive dashboard analysis on 3M’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

  • Trefis estimates 3M’s Q4 2021 revenues to be around $8.8 billion, up 2% y-o-y, and slightly above the $8.6 billion consensus estimate.
  • All of 3M’s segments have seen steady growth over the recent quarters. While the company’s safety and industrial products sales growth will likely be driven by overall pickup in industrial output, the demand for masks is expected to decline in Q4 and beyond.
  • 3M’s transportation and electronics business may face headwinds due to semiconductor chip shortages impacting the overall production.
  • However, the company’s consumer business may continue to trend higher driven by robust demand for home improvement products.
  • Looking back at Q3 2021, revenues grew 7% y-o-y to $8.9 billion, with gains across the company’s businesses. Our dashboard on 3M’s  Revenues offers more details on the company’s segments.
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(2) EPS also likely to be above the consensus estimates

  • 3M’s Q4 2021 adjusted earnings per share (EPS) is expected to be $2.09 per Trefis analysis, compared to the consensus estimate of $2.01.
  • 3M’s adjusted net income of $1.4 billion in Q3 2021 was flat y-o-y, as an increase in revenue was offset by lower margins, due to the inflationary headwinds and supply-chain constraints.
  • While these headwinds may impact 3M’s earnings growth in Q4, looking forward, for the full-year 2022, we do expect the adjusted EPS to be higher at $10.60, compared to $8.74 in 2020 and an estimated $9.90 in 2021, with easing of inflationary headwinds.

(3) Stock price estimate above the current market price

  • Going by our 3M’s Valuation, with an adjusted EPS estimate of around $9.90 and a P/E multiple of around 20x in 2021, this translates into a price of $197, which is 10% above the current market price of around $178.
  • The P/E multiple of 20x for 3M is largely in-line with the levels seen over the recent years.
  • That said, if the company reports upbeat results, with recovery in sales faster than our estimates, and the guidance for the full-year 2022 is better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in even higher levels for MMM stock.
  • Looking at P/EBITDA ratio, our price estimate of $197 is based on P/EBITDA multiple of 12x based on 3M EBITDA for the last twelve months.
  • The 12x P/EBITDA compares with levels of around 10x-12x seen over the last few years.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While MMM stock has more room for growth, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for 3M vs. Hewlett.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MMM Return -2% -2% -3%
 S&P 500 Return -5% -5% 102%
 Trefis MS Portfolio Return -10% -10% 255%

[1] Month-to-date and year-to-date as of 1/20/2022
[2] Cumulative total returns since the end of 2016

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